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What CIOs Can Learn from Venture Capitalists

By partnering with Silicon Valley startups, CIOs can position their companies at the leading edge of consumer tech innovation.

Until recently, sales and marketing teams at consumer packaged goods and retail companies have often worked with in-house software developers to build specialized customer-facing applications that weren’t available off the shelf. Yet increasingly this collaborative development model is being disrupted by the democratization of technology. Rather than waiting weeks or months for IT to roll out internally developed tools, employees are now downloading valuable apps in a matter of seconds, effectively cutting CIOs and IT out of the technology development loop.

“Many of the consumer and brand apps, and other tools corporate sales and marketing teams use to engage consumers, are being designed by Silicon Valley-style startups,” says Marcus Shingles, a principal at Deloitte Consulting LLP. “Essentially, entrepreneurs with a decent understanding of consumer behavior can now develop apps and easily distribute them to large populations of consumers. Moreover, corporate sales and marketing teams are using these and other innovations to interact with consumers in intriguing ways, while completely bypassing the CIO and corporate IT’s involvement.”

Shingles says that while many Fortune 500 companies are paying scant attention to this wave of innovation coming from startups, some in the CPG and retail industries, among others, are taking steps to harness it. “Increasingly we’re seeing large, established companies working directly with and providing funding for startups,” he says. “Others are establishing their own technology incubation labs in Silicon Valley, and moving innovation teams outside the walls of corporate headquarters, where ideas and creativity can face resistance from entrenched interests.”

Extending an existing IT ecosystem to include startups may offer forward-thinking companies an opportunity to position themselves at the leading edge of innovation in their sector. It also presents entrepreneurial CIOs with an opportunity to redefine their traditional leadership role and actually source innovation. “The CIO’s role may now include understanding how to partner with these startups and potentially how to fund them, leverage them, and capitalize on their agility,” says Shingles. “In other words, CIOs can effectively function as venture capitalists, while managing an expanded innovation ecosystem for stakeholders.”

A Friend in Need

CPG companies and retailers are currently working strategically with technology startups in a number of ways. For example, a leading CPG company forged a strategic relationship with a Silicon Valley startup offering a mobile phone app that helps retailers reward customers for their business. Rather than taking an equity stake, it worked closely with the startup’s development team to provide expertise on brands, retailers, and shoppers. In return, the startup afforded the CPG company an opportunity to enhance its mobile strategy with new capabilities.

Meanwhile, a leader in the retail sector is taking a different approach, establishing its own “startup” technology incubator in the heart of Silicon Valley. To date, the incubator has developed several online platforms for engaging customers that the company has successfully deployed in recent marketing campaigns.

Shingles says that these and similar initiatives represent a fundamental shift in the way some companies are approaching innovation and technology. “Whether they are funding and working with startups with promising ideas, or establishing their own incubation labs, these organizations are creating places outside of the corporate headquarters—and the established IT ecosystem—where they can be agile and experiment,” he says.

Seizing a Leadership Opportunity

Though technology development efforts such as these are typically overseen by various C-suite leaders, in many companies it remains an open question as to who will own them going forward. “There are opportunities for entrepreneurial CIOs to redefine their role and lead these efforts,” says Shingles.

Shingles says that to become drivers of innovation, CIOs should try to learn all they can about trending technologies—nanotechnology, artificial intelligence, 3D printing, digital medicine and biology, augmented reality, and advanced robotics, among others. He also suggests that CIOs consider spending time and setting up innovation incubation hubs in Silicon Valley, Boston, or other technologically fertile locales, to stay on top of the latest innovations, and connect with technology entrepreneurs looking for partners and funding.

“Right now, first mover advantage can still lead to sustained competitive advantage,” says Shingles. “Make a point to continuously scan the playing field of innovation in order to find and prioritize opportunities. This will help you identify promising ideas before your competitors, and potentially strike deals to help bring them to fruition.”

Finally, startups often succeed where internal system development teams fail because they are willing to experiment, fail occasionally, and learn from their mistakes. “The innovator’s mantra is ‘If you are not failing, you are not testing enough ideas,’” says Shingles. “As the champions of innovation, CIOs can promote this concept internally and help their companies become more comfortable taking the kinds of risks that startups embrace as a matter of course. This cultural shift is required if companies want to embrace an innovation strategy.”

About Deloitte Insights

Deloitte Insights for CIOs couples broad business insights with deep technical knowledge to help executives drive business and technology strategy, support business transformation, and enhance growth and productivity. Through fact-based research, technology perspectives and analyses, case studies and more, Deloitte Insights for CIOs informs the essential conversations in global, technology-led organizations. Learn more.

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